I don't think the dwindling numbers has anything to with graphics, I mean look how popular minecraft is and that game as 16x16 textures!
Minecraft is intentionally bad.
It's part of it's aesthetic.
Like Tiny Wings.
It's different when you are trying your best and and just not measuring up.
Have you tried to interest a friend in AH? What was the reactions you got?
I invariably got two back to back reactions:
"Hmmm those graphics look kinda dated."
and
"Oh wait. Subscription? You have to pay subscription to play?" <stink face>
Less effect on existing players leaving. But eventually it's just one more factor making competition look attractive.
The reviews on the Steam page pretty much echo that as a common reaction by those downloading the trial there too.
What's your theory?